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Consumers Cut Debt by Choice and by Force, Draining Fuel for Economic Rebound

Americans borrowed less for the sixth consecutive month in July, fueling concerns that strained consumers will stall an economic recovery.

People shed debt by choice and by force, reflecting a combination of the thrifty attitudes and tighter lending conditions that have defined the recession. Total borrowing, which includes most consumer loans except real estate, decreased at a 10.4% seasonally adjusted annual rate in July to $2.47 trillion, the Federal Reserve said Tuesday. July’s $21.6 billion drop from June was a record; total credit had declined at a 7.4% annual rate in June.(…)

"There is no real way to put a positive spin on these data," Charmaine Buskas, a TD Securities economist, wrote in a note to clients. "Credit is still shrinking and that is going to have an impact on consumption."(…)

Tuesday’s report showed Americans are ditching their plastic. Revolving credit, which is primarily credit-card borrowing, declined at an 8% annual rate. The Fed’s July senior loan officer survey showed 35% of banks tightened credit-card approval standards; no banks reported easing them. Nearly half the banks surveyed also said they had decreased the size of credit lines for existing customers, whereas just 3% increased them.(…)

Nonrevolving credit, such as loans for autos, vacations and education, declined at an 11.7% annual rate. (…)

Full WSJ article